VC Evolution and History

By pjain      Published June 30, 2021, 1:12 a.m. in blog Business-Management   

Timeline of VC

Tracking VC funding

Year Invest$b No. Cos
2018 $131 b 8300

VCs have had HUGE Impact on US Economy

Over the past half century, VC has had an outsized effect on the landscape of the American economy:

Of the U.S. companies that went public between 1974 and 2015, two out of five had been VC-backed. Among technology companies, the VC share is of course much higher. - Stanford Business School study

Arabian, Gujarat Traders

Venice, Italy trade Cartels

Lloyds and Shipping Insurance and Venture Funding

1800s+ Whaling funding - High Risk, High

The roots of VC much farther back, in 19th-century American whaling voyages. Whaling agents intermediated between wealthy investors on one hand and captains and crews on the other. "Like a general partner in a VC firm, the agent typically received a fee for his organizing services plus a share of the voyage's profits." - Tom Nicholas

And like modern VC funds, whaling investments had skewed returns, with 1.7 percent achieving returns of 100 percent or more while, at the other extreme, one-third came up dry with returns of zero or less.

1890s Wealthy Robber Barons Funded others

Later predecessors of VC were wealthy individuals investing in early-stage technology ventures, such as Andrew Mellon in the late 19th century, and institutions created to make such investments for members of wealthy families.

1940s Family offices and Trusts to exploit Generational Wealth

Family offices such as Rockefeller Brothers, founded by Laurance Rockefeller in 1946 to invest for the Rockefeller family. The decade after World War II, Nicholas writes, finally saw the emergence of a version of the VC industry as we know it, though it was still "embryonic" — around a dozen firms in all — each one investing in perhaps five to 10 companies.

1946 ARD, Boston

VC originated with the Boston-based American Research and Development Corp., or ARD.

1957 Digital Equipment was game changer

ARD's investment in pioneering minicomputer maker Digital Equipment Corp. was a milestone moment in the history of computers.

Intel VC deal in 1969

Apple Computer in 1978

1980s VC funds Explosive Growth

With annual commitments to VC funds growing twentyfold.

Government policy developments.

  1. Late 1970s and early 1980s brought cuts in capital gains tax rates.

  2. 1979 federal law changed governing pension investments, known as ERISA, allowed pension fund managers greater leeway to invest in VC funds, vastly increasing those investments.

  3. Success of Intel and Apple Computer a huge stimulant.

The success of Apple Computer played a major role in the 1980s VC explosion, the mammoth return to VC firm Venrock's 1978 investment in Apple surely helped to validate the model of skewed or long-tailed returns in investors' minds.

Netscape in 1994

Late 1990s VCs had POOR Returns

As Nicholas observes, the further escalation of VC activity during the late 1990s internet boom had a less happy ending.

2008+ IPOs of Large Big Tech

The four largest companies in the world by market capitalization — Microsoft, Apple, Amazon.com, and Google's parent, Alphabet — are all VC-funded tech companies.

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  • VC: An American History By Tom Nicholas - on evolution of VC institutions

Characteristics of VC firms

VCs are Financial Fund Intermediaries and play a central role in Startup Success

VCs raise funds from institutions and wealthy individuals, screen investments (often as many as 100 opportunities for every one in which the firm invests), and play an active role in the governance of the enterprises they back.

Very Skewed Returns - Few Winners Dominate!

VC returns do not follow a normal bell-shaped distribution but rather are skewed; most of the return to a VC portfolio comes from a few exceptional winners.

OUTLIER VCs that Outperform, do so for Long time

Unlike in public equity markets, the performance of a VC firm tends to be a strong predictor of future performance: VC firms that outperform tend to keep doing so.

This has been explained variously and likely due to a combination 1. Image and Reputation 2. Superior access to high-potential opportunities 3. Superior acumen in screening 4. Superior advising and governance of portfolio companies

Clusters of Similar Fundings and 4 of 100 survivors

Centers of New Technology - University and Industrial Parks

But how did the VC industry in California pull so far ahead? By 2018, VC firms in California had $228.2 billion in assets under management, swamping runners-up Massachusetts and New York at $59.5 billion and $56 billion, respectively. The changes in tax and pension policies were national, after all. While multiple factors were involved, Nicholas astutely highlights California's policy against enforcement of noncompete clauses, a policy that promotes free movement of labor and formation of spinoffs.

VC is an accessible business history of the industry, one that policymakers nationwide and, indeed, worldwide can learn from in thinking about how to encourage investment in startup innovation.


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